Former President Bill Clinton and Hilary Clinton received criticism recently for their estate plan. The criticism centered around one way that the Clintons are seeking to limit their estate tax burden and how in the critics' views that contradicts their political views on the tax. However, regardless of the politics, what the Clintons did with their estate plan is something that you might consider for yourself.
Much has been written of late regarding Bill and Hillary Clinton and their wealth or lack thereof. That issue aside, the Clintons used a qualified personal residence trust (a QPRT for short) as part of their estate tax planning. While QPRTs are complicated trusts, the basics of what they do and why are easy to understand.
Basically, a QPRT is created with a predetermined time limit and ownership of the residence is transferred to that trust. The value of the residence is fixed for gift tax purposes on the date ownership is transferred. When the time limit of the trust runs out, the trust is terminated and ownership of the residence passes to a beneficiary designated in the trust. In this case, that is presumably Chelsea Clinton. For tax purposes, this transfer is then seen as a gift and when the Clintons pass away, the residence will not be part of the estate for estate tax purposes.
However, there are some potential drawbacks to the use of a QPRT. These drawbacks were addressed in a recent Motley Fool article titled “QPRT: This Tax Strategy Could Save Bill and Hilary Clinton (and You) Big Money.”
For example, when the QPRT time limit expires, the Clintons will no longer own the residence. If they continue living in it after that, then they will have to pay fair market rent to the new owner. Additionally, if the Clintons pass away before the trust runs out, the trust will be destroyed and treated as if it never existed for estate tax purposes.
Not everyone needs a QPRT and not everyone has enough assets to worry about estate taxes. However, for those who do have enough assets, a QPRT is one vehicle that can be used to lower the estate tax burden on their heirs.
One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.
Reference: Motley Fool (June 21, 2014) “QPRT: This Tax Strategy Could Save Bill and Hilary Clinton (and You) Big Money”